Lockheed Martin Set to Overhaul UH-60 Helicopter Blades

Defense major Lockheed Martin Corp.’s LMT business unit, Sikorsky Aircraft, recently secured a contract from the U.S. Army for the overhaul of 381 UH-60 tail rotor blades. Work related to this is scheduled to be over by Mar 31, 2019.

Valued at $37.6 million, the contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL. Lockheed Martin plans to utilize other fiscal-2017 funds to finance this project, which will be carried out in Dallas, TX.

A Brief Note on UH-60

Originally developed and manufactured by Sikorsky, the Blackhawk helicopter has been the work-horse of the U.S. Army, performing multi-mission tactical operations since 1978. UH-60 is one of the legacy Blackhawk models, each coming with a single 4-bladed rotor and a single 4-bladed tail rotor.

It is a twin-engine, medium-lift utility copter that offers fail-safe service, during both day and night, in the harshest weather conditions, anywhere in the world. Its titanium-core rotor blades are resistant to AAA (anti-aircraft artillery) fire for up to 23mm and are equipped with pressurized sensors capable of detecting loss of rotor pressurization (damage).

Our View

We remind investors that the purchase of the Sikorsky Aircraft by Lockheed, for $9 billion from United Technologies Corp. UTX in Nov 2015, strengthened the former's position as the largest defense contractor in the U.S. Notably, this acquisition added Sikorsky’s world-known aircraft, Black Hawk, along with a handful of combat and commercial choppers, to Lockheed’s helicopter product line.

During the second quarter of 2017, Sikorsky’s CH-53K King Stallion heavy lift helicopter received an affirmative Milestone C decision from the Defense Acquisition Board, thereby validating the maturity and its robust capability in meeting the U.S. Marine Corps mission requirements. Following this, CH-53K will enter the low-rate initial production phase of the program. Per management, this Milestone C decision, coming less than 18 months after the CH-53K made its first flight, demonstrated a remarkable accomplishment for this aircraft, with its unmatched payload capability and modern avionics.

Such developments have further bolstered management’s expectation to witness improved cash flows from the Sikorsky business unit in 2018, going ahead. We believe such generous fund flows from Pentagon, in the form of contracts, will also add further impetus to its desired business expansion in this product line.

Price Performance

Lockheed Martin’s stock has improved about 11.4% over the last one year, underperforming the Zacks categorized Aerospace/Defense industry’s gain of 21.2%.This could be because the earlier budget cuts have put pressure on the top line, although the present defense budget is more in favor of the sector. We believe that budget deficits and political uncertainty might make future defense budgets vulnerable to cutbacks. Furthermore, the stock’s performance lags compared with that of General Dynamics Corp. GD and Huntington Ingalls Industries, Inc. HII, which surpassed the industry mark.

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